- The maximum Social Security benefit in 2022 ranges from $2,364 to $4,194, depending on the age at which you retire.
- Social Security benefits are calculated using your 35 highest-earning years and a complex mathematical formula.
- Full retirement age is 67 and that’s when you can collect your full Social Security benefits. But you can increase or decrease your benefits by collecting as early as age 62 or as late as age 70.
- Depending on your annual income, you may pay income taxes on up to 85% of your Social Security benefits.
Social Security retirement benefits were created in 1935 to serve as a safety net for retired workers. Today, more than 46 million retirees receive monthly Social Security benefits, with an average benefit of $1,550. Regardless of our line of work, most of us will eventually be eligible for benefits when we reach retirement age.
As you’re planning for retirement, you might find yourself wondering how much you can expect to receive in Social Security benefits. The not-so-great news: It probably won’t be enough for you to live on. But it can provide an important source of income alongside your other retirement savings.
Inside this article
What is the maximum Social Security benefit?
In 2022, the maximum amount someone can receive in Social Security retirement benefits is $3,345 per month if they retire at the full retirement age of 67. Someone who starts collecting benefits early at age 62 could receive a maximum of $2,364 per month. Finally, the maximum benefit for someone who starts collecting benefits at age 70 is $4,194.
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Keep in mind that Social Security benefits are regularly adjusted for inflation. So it’s unlikely that the maximum benefit today will still be the maximum benefit when you retire.
In addition to a maximum Social Security benefit, there is also a minimum benefit. This was created in 1972 to ensure that long-term low earners would still receive sufficient benefits during retirement. As of 2021, the minimum benefit is $897.90 per month.
How are Social Security benefits determined?
There’s a wide range between the minimum and maximum benefit. So which end of the scale will you fall on?
“The calculation is absolutely not simple,” says Blaine Thiederman, a Certified Financial Planner and the founder of Progress Wealth Management. “The long story short is, they take your highest 35 years of indexed earnings and base the amount they pay you on these indexed earnings to arrive at how much you’re owed at your full retirement age.”
Just as the IRS keeps track of your income each year for income tax purposes, the Social Security Administration (SSA) keeps track of your income to determine your future benefits. Your wages are indexed to account for changes in the average wage.
And using your highest-earning 35 years, the SSA uses a formula to arrive at your primary insurance amount (PIA), which is the amount you’ll receive if you retire at the full retirement age.
How does your age affect your retirement benefits?
We’ve already talked about how your income is an important factor in determining how much you can collect in Social Security benefits, but another critical factor is your age.
The full retirement age is 67 for anyone born in 1960 or later. That’s the age at which you can collect your full estimated benefits. But the SSA actually allows you to start collecting benefits as early as age 62. Keep in mind, however, that your benefits will be reduced by 30%. And on the other end of the spectrum, you can wait until age 70 to start collecting benefits and your benefit will increase.
Deciding when to start collecting Social Security benefits is a difficult question, and there’s no answer that’s right for everyone. It largely comes down to your expected life span, your ability to continue working and your financial situation.
“If you expect to have a short retirement due to health issues and aren’t concerned with your spouse’s future ability to pay the bills, since they’d inherit your Social Security if they’re lower-earning, most people file early because they hope to get some Social Security,” says Thiederman. “But it’s important to recognize that there’s risk in this decision.”
That risk is that you (or your spouse who is dependent on your Social Security earnings) will live longer than expected and you’ll actually end up receiving a lower monthly income.
According to Thiederman, waiting until age 70 to collect Social Security can help increase your benefit amount, but you would have to live past age 82 for the extra amount per month to exceed the benefits you didn’t collect for the extra years.
If you’re unsure of when the best time is for you to start collecting benefits, a financial planner or retirement planning expert can help.
How are Social Security benefits taxed?
Depending on your situation, you may have to pay income taxes on your Social Security benefits. The IRS requires that you pay income taxes on up to 50% of your Social Security benefits if you meet either of the following requirements:
You are a single filer with an income between $25,000 and $34,000.
You are a joint filer with a combined income between $32,000 and $44,000.
You can expect to pay income taxes on up to 85% of your benefits if you meet either of these requirements:
You are a single filer with an income of more than $34,000.
You are a joint filer with a combined income of more than $44,000.
If you are married and you and your spouse file separate income tax returns, you will most likely have to pay income taxes on your Social Security benefits.
What can you expect to receive from Social Security?
You don’t have to worry about any big surprises. The SSA makes it easy to track your future benefits throughout your entire career.
All you have to do is set up a “my Social Security” account at the SSA website. You can track your future benefits, as well as apply for Social Security, request a replacement Social Security card and manage your current benefits.